Insurance – The Times They Are A-Changin’
The origins of the insurance industry can be traced back to Edward Lloyd’s coffee house in the 17th century.
It was a very different world then and insurers have had to adapt to changes in business models and also to try and keep pace with rapid changes in science and technology.
The lines used to be clear. Businesses generally manufactured something physical or provided advice or a service.
As a consequence, insurers produced very distinct insurance covers; Product Liability for the manufacturer and Professional Indemnity Insurance for those providing advice or a service for a fee. The former primarily concerned with third party bodily injury or property damage from the supply of a product – the latter financial losses as a result of negligent advice.
However, business models have changed and when it comes to medical device companies, the digital sector or indeed the bioscience industries it is clear that some of the traditional models of insurance may not always be suitable for these types of businesses.
For example, is software a product or a service? Under English Law it is potentially either, dependent upon what is delivered and by what means. As a consequence specialist insurers have their Professional Indemnity Insurance policies to cover financial loss claims, even though such claims may emanate from the supply of a product.
Similarly, licencing models mean that Product Liability Insurance may not provide sufficient insurance protection for the product supplier. Take a business that licences technology to a third party which then exploits that and manufactures a physical product, which it supplies under its own brand to a third party.
If a customer suffers an injury caused by that product, they are likely in the first instance to bring a claim against the licensee, who in conjunction with their insurers may seek to deal with such a claim in the first instance. However, it is likely that they would subsequently seek recovery from the licensor. This secondary claim against the licensor from the licensee is no longer a claim for bodily injury but a financial loss and may fall outside the scope of a standard Product Liability cover.
The same principle can be applied to businesses supplying a product to an OEM for incorporation into their product.
Times are definitely a-changin’ – it is vital that any early stage technology business takes the right advice in ensuring that they are appropriately protected: not only today, but through the life cycle of their business.
This article has been reproduced following publication in Spin Outs UK, a quarterly journal tracking and writing about early stage high growth companies in Scotland and the North of England.
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